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Paper #1712

Security design in non-exclusive markets with asymmetric information
Vladimir Asriyan i Victoria Vanasco
Novembre 2019 (Revisió: Juny 2021)
We study the problem of a seller (e.g. a bank) who is privately informed about the quality of her asset and needs to raise funds from uninformed buyers (e.g. investors) by issuing securities backed by her asset cash ows. In our setting, buyers post menus of contracts to screen the seller, but the seller cannot commit to trade with only one buyer, i.e., markets are non-exclusive. Non-exclusive markets behave very di erently from exclusive ones: (i) separating contracts are never part of equilibrium; (ii) mispricing of claims is always larger than in exclusive markets; (iii) there is always a semi-pooling equilibrium where all sellers issue the same debt contract priced at average-valuation, and sellers of low-quality assets issue remaining cash ows at low-valuation; (iv) market liquidity can be higher or lower than in exclusive markets, but (v) the average quality of originated assets is always lower. Our model's predictions are consistent with empirical evidence on issuance and pricing of mortgage-backed securities, and we use the theory to evaluate recent reforms aimed at enhancing transparency and exclusivity in markets.
Paraules clau:
adverse slection, security design, non-exclusivity, tranching, liquidity, securitization, transparency, opacity, complexity, market design, regulation
Codis JEL:
G14, G18, D47, D82, D86
Àrea de Recerca:
Macroeconomia i Economia Internacional
Publicat a:
The Review of Economic Studies, forthcoming.

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